By George Walther-Meade
In a recent meeting with GOP senators, Trump gave his views on negotiating the North American Free Trade Agreement (NAFTA). His views suggest that his strategy is more of the same with him – branding his opponents as monsters and focusing his attention on his base in the red-states. Trump has issued a notification of his intent to leave NAFTA which would trigger a six-month waiting period before the US can be released from the agreement. During that six-month period, he seems to believe that he can close the trade deficit with Mexico and force Mexico and Canada to concede to his demands.
As Trump’s concessions remain unclear, senators were able to cast more light on those demands, indicating that Trump’s only clear objective may be to close the trade deficit with Mexico. Other Senators, such as Sen. Pat Roberts of Kansas, are worried about the repercussions of Trump’s “walk-away” strategy saying, “if you start the clock on NAFTA [withdrawal] that’s going to send very bad signals through the entire farm economy.” American farmers and ranchers exported $17.9 billion worth of goods to Mexico in 2016.
What many of Trump’s constituents aren’t aware of is that almost five million American jobs are reliant on trade with Mexico. This includes auto manufacturing, automotive and aerospace components, railroads, heavy equipment, machinery, oil and gas among others. Many of these jobs are based in the vast swaths of the US known as “flyover country” to include the agricultural and industrial centers. The concerns of this base is often seen in direct opposition to the moderate or left leaning coastal elites.
The Midwestern states of Missouri and Kansas are prime examples. Mexico is Kansas’ largest export market and Missouri’s second largest. Around 100,000 Missouri jobs and 50,000 Kansas jobs are reliant on Mexico as a trade partner. In a recent interview with the Wall Street Journal, Patrick Ottensmeyer, CEO of Kansas City Southern Railway, shed light on just how reliant they are on exports to Mexico, stating that exports from both Missouri and Kansas City have increased by more than 550 percent under NAFTA.
After observing Trump’s approach to NAFTA, around 80 food and agricultural business groups submitted a letter to Commerce Secretary Wilbur Ross, attempting to bring to light the risks and perils of withdrawing from NAFTA. Included in this letter, the risks were outlined saying, “contracts would be cancelled, sales would be lost, able competitors would rush to seize our export markets and litigation would abound even before withdrawal would take effect.”
Not only would the food and agricultural business be affected, but the auto industry in particular would be damaged. So much so, that American auto makers, part suppliers, and dealers announced that they had created a coalition called Driving American Jobs, designed to defend NAFTA. The key statistic that is used is that one million more vehicles were made in the United States in 2016 than in 1993, the year before NAFTA was implemented.
Americans favoring trade restrictions argue that Mexico steals jobs, yet independent economic data suggests the net creation of jobs in Mexico as a result from US direct investment is minute compared to the US’s gross job losses. Typically, when the region’s economy does well, North American job opportunities expand. Not only that, but Mexican companies also create American jobs. The refrigerated food division of Grupo Alfa purchases American meat, supporting around 40,000 jobs in this industry within the United States. Not only that, but Alfa’s aluminum auto part business employs another 4,500 Americans, in addition to 50% of their raw materials being sourced in the United States.
The US is not alone in wanting to reform NAFTA. There are many issues that both Mexico and Canada would like to reform. With a Mexican presidential election looming in July 2018, the Mexican government cannot be expected to cave to Trump’s unrealistic demands. Mexico has options that Trump seems to be unaware of. According to a US Senator quoted in Inside Trade, Mexico’s post-NAFTA plans include buying their grain and meat in South America which led him to say, “We’re not in as strong a position as (Trump) thinks we are.”
It seems that both Trump’s policy woks and his base need to look closer at the facts and they will come to realize that while it’s time to scrutinize the NAFTA agreement, they also need to be fully aware of the impact on local, state and cross-border economies. I think the facts clearly call for greater due diligence by all stakeholders…
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Having spent many years at KPMG as a partner and finally as Head of Corporate Finance, Midlands, Richard Boot currently chairs and holds directorship of various companies associated with staffing and recruitment. He is also a former board member of IRC Global Executive Search Partners.
IRC Global Executive Search Partners convened affiliates and business partners at three regional summits covering Asia Pacific (APAC), Europe, the Middle East and Africa (EMEA) and the Americas in early 2019 to spark an intercontinental discussion about leadership and organizational preparedness in an era characterized by accelerating technological change and disruption.